Uber Lyft IPO

IPO Stock Ownership Won’t Create Loyalty for Lyft and Uber Drivers

by | April 17, 2019

Rideshare companies Lyft and Uber have announced stock ownership opportunities for their drivers as part of their IPOs this spring.  In an effort to build driver loyalty, the programs offer the drivers cash bonuses that allow them to subscribe to shares of the company’s stock in advance of the IPO.  This is an unusual structure because drivers are contractors, not employees.

Both companies have been cautious in granting stock to the drivers because it may bolster the argument that the drivers are actually “employees” — a position these companies have argued against since inception and even litigated.  For Lyft, the company’s offer to drivers ties the bonus amount to the number of rides by a driver — $10,000 for drivers who’ve completed 20,000 rides and $1,000 for 10,000 rides, but the amount of stock each driver can purchase is limited. Uber’s offer is similar in that they plan to offer “driver appreciation rewards” up to $10,000 for each qualified driver (about $273 on average), which can then be used to purchase stock at the IPO price.

While the goal of these programs is to reward drivers who have been devoted contractors and instill a sense of ownership in the drivers when it comes to choosing to work for one rideshare company versus the others — much of each ride-hailing company’s work goes into acquiring and retaining drivers — the stock purchase program might not achieve these goals.

Interviewed drivers seem focused on the bonus amount, as well as their inability to control the bonus amount. Some drivers also commented they would either keep the cash or buy the shares and sell them when the price increased.  In the case of Lyft’s IPO, the company may have even further frustrated employees by bringing to light the difference between benefits for full-time employees and contracted drivers. Where stock in public companies can be a major hiring attraction for full-time employees, the bonus Lyft drivers are receiving equals about ten cents per ride.

These experiences are important for any company to consider when thinking about equity as an incentive. Companies are looking to build loyalty and must remember that each employee is different. Therefore, the incentives are not one-size-fits-all.  As with Lyft and Uber, employee reactions to a particular program will differ greatly in reaction to the incentive plans.  In creating a program, the company must be clear as to the goal of the program and what the company considers “success” with the program.  If a business really wants to increase the staying power for those who are already highly loyal and drive folks to achieve those results consistently, the large bonuses at the highest level may be sufficient if offered each year.  However, those with less opportunity to excel but are nevertheless loyal and valuable to the company may be frustrated by the disparity and may either choose to leave or to further commit depending on the structure of the program.  Alignment of goals with the employee’s ability to impact those goals is essential to success.